Voluntary insolvency proceedings: when your company cannot pay

Insolvency proceedings are the judicial process that organises the situation of a company or person that cannot pay its debts. It is voluntary when the first application is filed by the debtor themselves (artículo 29 of the TRLC, the consolidated text of the Insolvency Act); if a creditor files first, the insolvency is necessary and the consequences are harsher: as a rule, the debtor loses the administration of their assets.

The prerequisite is insolvency: actual, when you can no longer regularly meet your due obligations, or imminent, when you foresee that you will not be able to meet them within the following 3 months. With actual insolvency, the application is a legal duty; with imminent insolvency, it is an option that allows you to anticipate and choose the moment.

Artículo 5 of the TRLC obliges you to apply for insolvency within the 2 months following the date on which you became aware or should have become aware of the actual insolvency. The law presumes this knowledge when external facts occur, such as a general cessation of payments or widespread attachments. Furthermore, the insolvency is considered necessary if in the 3 months prior to your application another entitled party had already filed one that was admitted for processing (artículo 29.2 TRLC).

Failing to fulfil the duty to apply for insolvency on time is one of the scenarios that allow the insolvency to be classified as culpable: the law presumes the fraud or gross negligence of the debtor or their directors, whether de jure or de facto, unless proven otherwise.

A culpable classification can lead to disqualification from administering other people's assets and representing third parties for years, the loss of rights as a creditor and, in company insolvencies, the possible order to cover all or part of the insolvency deficit with the personal assets of the directors.

Added to this is the corporate liability under artículo 367 of the Ley de Sociedades de Capital (the Spanish Capital Companies Act): if the company was involved in a cause for dissolution and the administrative body did not act within 2 months, the directors are jointly and severally liable for subsequent corporate debts. Applying for insolvency on time is the best defence: Managora calculates with you the date on which the deadline started running and leaves documentary evidence of the fulfilment of the duty.

Since 1 January 2023, micro-enterprises have their own mandatory insolvency procedure (Libro III of the TRLC). A micro-enterprise is a debtor, a natural or legal person with an activity, who employed an average of fewer than 10 workers during the previous year and has an annual turnover of less than €700,000 or liabilities of less than €350,000 (artículo 685 TRLC).

It has two routes: the continuation route, to agree with creditors on a plan that saves the activity, and the liquidation route, with or without the transfer of the company as a going concern. If 85% or more of the liabilities correspond to public creditors, it can only be processed as a liquidation (artículo 686.4 TRLC).

It is processed entirely with free electronic standard forms through the Electronic Micro-enterprise Service of the Administration of Justice. The debtor's participation in this procedure requires legal assistance and representation by a procurador (a court representative) (artículo 687 TRLC). Pay attention to the Agencia Tributaria (the Spanish tax authority): it requires specific communications (the application for opening must be communicated to it within 72 hours) and, if they are omitted in the continuation route, its credits are left out of the haircuts and deferrals of the plan.

Regarding debts: all previous credits are integrated into the passive mass and are paid in the legal order. Creditors have 1 month from the publication of the insolvency in the BOE (the Official State Gazette) to communicate their credits: the call appears in the declaration order (artículo 28 TRLC) and the duty of communication and its procedure are regulated in artículo 255 TRLC. Individual executions and enforcements on the bankrupt party's assets are, as a general rule, paralysed, and the accrual of interest is suspended with exceptions (credits with real guarantees and salary credits).

Regarding management: in voluntary insolvency proceedings, the debtor retains, as a rule, the powers of administration and disposal of their assets under the intervention of the insolvency administration. The declaration order establishes these effects in each case.

Regarding contracts: the declaration of insolvency, by itself, does not terminate contracts with reciprocal obligations pending fulfilment, which remain in force. Clauses that grant the other party the power to terminate the contract due to the mere declaration of insolvency are considered not included.

The agreement is the arrangement between the debtor and their creditors to pay with haircuts, deferrals or both. Following Ley 16/2022 (Law 16/2022), haircuts have no legal limit and deferrals can reach 10 years (artículo 317 TRLC). If it is approved and fulfilled, the company survives.

Liquidation converts the assets into money to pay in the legal order; in companies, it ends with their extinction. When the debtor lacks assets to pay for the procedure, an insolvency without mass can be used (artículos 37 bis and following of the TRLC): the judge declares the insolvency and, if creditors representing at least 5% of the liabilities do not request the appointment of an insolvency administrator within 15 days, the procedure concludes without further processing.

A natural person (entrepreneur or consumer) can obtain the exoneration of unsatisfied liabilities, the so-called second chance: either by liquidating their assets with immediate exoneration, or through a payment plan of 3 years (5 in certain cases, for example when the habitual residence is kept) without liquidating their assets. The exoneration does not cover all debts: public credit is only exonerated with quantitative limits and debts for maintenance or those derived from a crime, among others, are excluded. The Supreme Court established in February 2026 the criterion of how to apply these limits with respect to each public creditor.

If the insolvency is not yet actual, or has only recently become so, Libro II of the TRLC offers a pre-insolvency alternative: restructuring plans. They can be used by a debtor in probability of insolvency (risk of not being able to pay in the following 2 years), in imminent or even actual insolvency.

The first step is usually the communication of the opening of negotiations to the court (artículos 585 and following of the TRLC). Its effects last 3 months, extendable for another 3: executions on the assets necessary for the activity are paralysed and the duty to apply for insolvency is suspended while negotiating. The plan approved by the legal majorities and ratified by the judge can be imposed even on dissenting creditors or classes. If the negotiation fails and the actual insolvency persists, the duty to apply for insolvency is reborn.

Managora analyses your case and prepares the complete voluntary insolvency file (report, inventory, list of creditors and list of workers) in 3 to 5 working days from receiving your documentation: you can see the updated amount in the Voluntary insolvency application procedure file. Both in ordinary insolvency proceedings and in the special procedure for micro-enterprises, the presentation requires a lawyer and a procurador; this procedural representation is not included in the preparation of the file and we warn you of this from the very beginning.